Correspondent in Berlin
The ECB’s strategic review has been unanimously approved by the governing council, which means that this historic change has also received German approval. “It has been 18 years since the last review of the strategy and times change very quickly, we cannot afford to wait another two decades before reviewing again,” he noted. Christine Lagarde before announcing that these reviews become periodic, leave the next one convened for 2025. The ECB thus becomes a much more dynamic institution and gains in adaptability, although also less predictable, a characteristic that has never been a compliment to a central bank. Undoubtedly, we are witnessing a moment with revolutionary flashes in which the entity is freeing itself from what throughout history has been a strict corset for its activity: the inflation target. The ECB abandons the “2% or slightly below the 2%” that was in force until now, to monitor a “flexible and symmetric 2%”, which Lagarde has emphasized will not imply a ceiling on prices. It is more or less clear that medium-term inflation expectations are reinforced and that we can assume price increases in the coming months without the ECB going to do anything to prevent it.
«This new formulation of the objective allows less ambiguity because it replaces the previous a, which was double and more convoluted, it required interpretation. Not this one, so we gain clarity and it will be easier to communicate “, defended the president of the ECB at the press conference after the Council meeting in Frankfurt. “Sometimes it gave rise to erroneous perceptions about the aspirations of the Governing Council,” he insisted that the old formulation was less convenient and after insisting that “that 2% will not be a ceiling on prices.” The document that includes the new ECB strategy, which has been negotiated for a year and which is barely two pages long, recognizes that the Harmonized Consumer Price Index (HICP) It will continue to be the main reference for measuring inflation, but it has announced that from now on parameters will be introduced to make this reading more accurate, such as the evolution of housing prices according to imputed rents, which “will be a complementary measure at the time to make our decisions. Lagarde does not expect that the inclusion of rents in the calculation of prices will mean a big change in the measurement of the CPI, despite the fact that some experts calculate that, if they had been taken into account between 2015 and 2019, European inflation it will have registered values 10 basis points per year above those registered.
Lagarde has put a lot of emphasis on explaining that the 2% target is “medium term” and “symmetric”, so price levels above and below that point will be allowed. “We know that it will not be constant and that there will be deviations, we will be very concerned about consistent and persistent deviations, which will require action on our part.” He has also insisted that «In the event of an adverse ‘shock’, a more effective reaction will be necessary» and has specified that negative deviations will be corrected “forcefully or persistently through monetary policy actions.”
Regarding the ECB’s tools, “the most important will continue to be interest rates, there is no doubt”, but the new strategy recognizes that it will also continue to have the extraordinary measures “that we have been using for the last ten years” which indicates that the new strategy does nothing but put black on white and solidify practices that had already been carried out in the ECB but that did not fit comfortably into the statutes. From the ‘whatever it takes’ by Mario Draghi From now on, all the creative instruments with which the ECB has been propping up the continuity of the European economies throughout the last three crises are made official.
Another of the main changes is that the ECB broadens the objectives of its monetary policy. “The main objective of the ECB is to maintain price stability in the euro area, but without prejudice to that objective, the eurosystem will support the general economic policies of the EU in order to contribute to the realization of its objectives and needs”, Lagarde said, mentioning among them balanced economic growth and a highly competitive social market economy, aimed at full employment and social progress, with a high level of protection and improvement of the quality of the environment. Because the president of the ECB has also managed to include climate protection in the structural objectives of the entity that presides over it.